While all signs point to no WiFi on the “official” iPhone for China, there is a chance that Apple will submit a dual WAPI/WiFi model that would meet China’s requirements. Yet I’ll concede that this is a long shot.

Based on purported insider leaks to China’s tech press in March, Apple submitted two models for testing – one with WiFi and one without. Yet based on everything that I’ve read, China’s MIIT has allowed only one model to continue through the testing process – Model A1324. This appears to be a new Apple iPhone developed for the China market. It may come preloaded with several “for China” apps (e.g. Youku, Hanwang’s HWPen, etc) but it will most likely come sans WiFi.

Interfax TMT reported on April 7 that Apple had agreed to provide a majority share of App Store revenue to China Unicom. This leads me to believe that China Unicom has agreed to allow Apple to control delivery of wireless value added services (WVAS) and will allow iPhones to load apps via Apple’s China App Store (vs the app store that China Unicom will soon launch). I would imagine that as part of the negotiation quid-pro-quo, China Unicom will agree to pay a modest per unit subsidy and that the official iPhone will be priced significantly lower than grey market iPhones coming in from Hong Kong.

One item of note is that the iPhone 3GS has now landed in Hong Kong (July 10) and the SIM unlocked version can now be ordered through Apple’s HK Online Store. I’ve heard reports that the SIM unlocked models were sold out in a matter of hours. But not to worry, they’ll (Apple/Hon Hai) soon make more. SIM unlocked models must be shipped to a Hong Kong address. Too bad they need to swim across the channel and then back again.

In addition to Model A1324, I’m holding out hope (pure speculation) for another new model iPhone later in 2010. This model would be a low-priced “2G only” iPhone and would be available to any China carrier (unlocked). This model would be aimed at prepaid wireless consumers in BRIC nations, particularly in China and India.

<< So essentially they’ve likely been negotiating for a model of iPhone with enhanced parental governmental controls. >>

Actually, yes … all “officially approved” WiFi-enabled phones in China must also include China’s home grown WLAN authentication and privacy infrastructure otherwise known as “WAPI”

China only recently approved the use of WiFi on handsets as long as these phones include WAPI encryption … WAPI (wireless authentication and privacy infrastructure) is still not an ISO/IEC approved standard. The ISO/IEC has previously been rejected WAPI. One reason for rejection was concern over a theorized WAPI “backdoor” that would allow government to monitor users:

“One of the problems with China’s attempt to get WAPI wider acceptance is that they refuse to provide the full specification or its encryption algorithm. I can’t think of a standards body willing to adopt a standard they can’t see.”

… “with WAPI’s algorithm still hidden in the shadows, one has to wonder who WAPI’s adoption would make more secure: consumers or the Chinese government?”

… and remains a raging debate amongst “techies” who know more than I … but it’s one reason why there is no clarity as to whether the TBA “official” iPhone in China will come with WiFi … If it does include WiFi … then it is virtually certain that it will be dual WiFi/WAPI … otherwise iPhone would not be approved by MIIT.

The buzz from China is that MIIT is testing an iPhone with WiFi disabled … if true, then Apple has made the decision to forego inclusion of WAPI. NOTE: These restrictions will apply to ALL smartphone manufacturers who offer WiFi enabled phones in China – Apple, RIM, Palm, Nokia, HTC, et. al. They will either include WAPI or they MUST disable WiFi.

All quiet from sites and sources I monitor … My SWAG is that a deal announcement will happen sometime in July with a launch later in the summer. But this is more a gut feel than based on any solid intel. In any case, a deal announcement won’t happen until formal MIIT issuance of iPhone’s network access license (NAL) … which could happen at any time.

I suspect Apple will defer the iPhone in China launch date until the 55 major cities in China are showing good coverage via WCDMA 3G … and that’s progressing.

A few items that might have some relevance …

The iPhone 3GS will go sale officially in Hong Kong July 19(just a rumor – no confirmation). But Apple has already stated it would be avail in HK in “July,” so this is no huge revelation.

China Unicom’s WCDMA 3G network build out continues at a brisk pace.

Apple/China Unicom official deal announcement could happen in concert with iPhone’s NAL issuance by China’s MIIT.

Word is that MIIT’s iPhone tests have been underway for several months now. So approval (NAL) could theoretically happen at any time. The wildcard is whether Apple is has provided the MIIT a WiFi/WAPI enabled model for tests … or just a model with WiFi disabled (as rumored). China’s authorization of WiFi/WAPI combo was only made public a few weeks ago. Should Apple elect to go this route (go with WiFi/WAPI) it might add time to testing/approval process. I have no reason to believe that Apple will go with WiFi/WAPI. Smart money says that Apple will disable WiFi on the official iPhone in China.

I’ve chatted via Twitter with several beta testers of China Unicom’s WCDMA 3G. They are primarily in Shanghai and Beijing. Since updating to iPhone 3.0 OS on their “unofficial” iPhone 3G (not S), they are reporting improved WCDMA coverage. Major cities in China (55 cities) are now up and running on WCDMA. But there are many secondary cities in China that are still in the early stages of installing WCDMA base stations. … new base stations are going up every day.

When the WCDMA 3G network is completed, I expect the coverage in China to be very good. Much better than in the U.S. Thanks to China’s economic stimulus package, the spend on 3G in China dwarfs what U.S. carriers have spent to set up their own networks. China Unicom’s WCDMA 3G network plans to cover China’s 284 cities with 78,600 base stations. That’s more 3G base stations than all carriers in Western Europe have rolled out in 9 years since 3G wireless standard has been in existence.

iPhone in China deal FUD

NOTE: Lead buried at post’s end – Beijing Apple iPhone job posting

I’ve been picking up some rather annoying buzz about a story on China’s NBD.com (use Google translate). The NBD.com post states that Apple and China Unicom “are not making progress in negotiations” and iPhone is “now less important in China Unicom’s strategy.” This story and several other regurgitated articles — Marbridge Consulting, Trading Markets, etc. — are being read by institutions and hedge funds that trade in Apple (AAPL) shares. These institutions are being spoon-fed pure FUD (Fear, Uncertainty and Doubt).

My research suggests that the deal is still a “go” and will be announced before end of July. The official launch of iPhone in China will likely be later this summer. The only wildcard that could delay launch is Apple’s possible inclusion of China’s WAPI encryption layered over WiFi. There has been no good visibility on Apple’s WAPI plans, so my guess is as good as the flip of a coin – WAPI/WiFi yes or no? WAPI/WiFi would require a special production run* of iPhone for China.

I believe the current “deal stalled” stories are coming as a result of China Unicom’s recently announced plans to develop UniPlus, their own mobile operating system (an Android recode) and UPhone, a customized Android-based handset. I first wrote about this in April and more recently here >China Unicom and China Mobile unveil operating systems.

China Unicom’s UniPlus/UPhone have been in the works for many months. This move mirrors and matches China Mobile’s Android OPhones and their proprietary OPhone mobile operating system (MOS) which is still under intense development. China Unicom had to respond in kind. In late March, I engaged in a lengthy public debate with Dr. Cheng Dejie, a senior telecom analyst in China, about the carriers’ move to develop their own MOS and proprietary handsets > read Apple’s iPhone in China Negotiations

The recent media reports seem to infer that UniPlus/UPhone will leave no shelf-space for iPhone as China’s carriers are now attempting to Appleize** their own wireless platforms. In the case of China Mobile, that may well be true (at least in 2009). In the case of China Unicom? Well, yes, they’re also Appleizing**but they are smart enough to know that “me too” UPhones may not be compelling enough to grab market share away from China Mobile. Hence, they will partner with Apple to offer an official iPhone in China. UPhones and iPhones can exist side-by-side in China Unicom’s Vsens.com inventory. The Chinese consumer will ultimately pick the winners.

Now that I’ve buried the lead, hear it is … Today’s (June 10, 2009) Apple Job Posting – Program Manager, Beijing China. Duties: Responsible for supporting and managing iPhone Training Program across Asia. Responsibilities will include working with all carrier partners that sell iPhone to implement and design training programs. Individual will work with the Apple Sales Teams on planning and training retail channel partner personnel on selling iPhone.

Still believe the iPhone in China deal is in jeopardy? Smart money says it’s coming soon!

* iPhonAsia has long theorized that China would have a special production run of iPhone that might include several pre-loaded apps for China (e.g. Youku vs Youtube). The new model iPhone 3GS unveiled at WWDC already supports (w touch of globe icon) 30 different languages, including both simplified and traditional Chinese. Apple’s iPhone in China will also support Chinese character recognitionwhereby users draw Chinese characters with predictive capability.

Marbridge Consulting is carrying a story today about China’s Ministry of Industry and Information Technology (MIIT) approval of a WiFi capable 3G phone by Motorola. This appears to be the first WiFi 3G handset approved by the MIIT. The previous MIIT policy was to not allow WiFi on 3G mobile phones. The approval came about because of Motorola’s inclusion WAPI encryption. WAPI is China’s homegrown standard, an alternative to 802.11 (called WiFi). This appears to be the first mobile handset to integrate both WiFi and WAPI protocols. Read more about China’s morphing WiFi/WAPI polices > HERE

Will Apple follow Motorola’s approach and include both WiFi and WAPI in a new iPhone for China? iPhonAsia believes that this is a distinct possibility. We should have the answer in a matter of weeks.

EXCERPT: Motorola China’s vice president of sales, Wen Tao, confirmed the company will release a Wi-Fi capable WCDMA handset in China by the end of this month or early next month at the latest. Currently, no Wi-Fi enabled handset has received a mobile network access permit from the Ministry of Industry and Information Technology (MIIT). Wen said the handset, called the A3100, received permission because it supports both Wi-Fi and WAPI wireless networking standards. Read full post> HERE

iPhonAsia’s response to Barron’s article

Here (below) is iPhonAsia’s comment to the article. Let’s see if we make it past their spam filter 🙂

FWIW, here’s my guesswork … The majority of obstacles that Bernstein’s Toni Sacconaghi mentions have already been resolved. He is right that China Unicom will be the initial carrier in China and they will likely get a “3G” exclusive for a year or two. That opens up the opportunity for a low cost unlocked 2G iPhone that would be available through both China Unicom and China Mobile.

I think analysts Shaw Wu and Mike Abramsky may be right in their prognostications that we will not see the rumored Nano iPhone in 2009. However, a low cost iPhone model may be introduced sometime in 2010 to address potential buyers in major pre-paid markets – China, Brazil, India, Indonesia, Russia and Eastern Block countries. While this low cost iPhone has been dubbed a “Nano,” there are plenty of reasons why this phone might turn out to be a full screen model sans 3G and some high end features.

WO

As far as the timing for an iPhone in China announcement … I’m sticking to my prior guess … either May 17 (World Telecom Day) or June 9 (WWDC Keynote) and a launchlater in the summer but not before July 1st.

The wild card that could upset the timing of an iPhone launch is the outside chance for WiFi (802.11) on a special production run for China.* Apple would no doubt prefer WiFi over China’s homegrown WAPI (doubtful that Apple would build WAPI support into an iPhone for China) and there is still a chance for WiFi approval. Why? Read more here:

*iPhonAsia believes that the iPhone for China will be a special production run and may come preloaded with several “for China” apps such as mobile search through Baidu.com and an app to support either Tudou or Youku (China YouTube alternatives). We may hear more about these special partnerships with Apple on May 17 or June 9. Read more > HERE

As a side note: Apple has sought people with Hand Writing Recognition Software/Development expertise. With my Oxford Chinese/English Dictionary I’ve been exploring writing Chinese Characters with a squirrel brush and ink . What I’m getting at: Recently, I watched a Chinese friend Text Message using a Qwerty Mobile Keyboard… I feel the MultiTouch iPhone Screen, the sophisticated OSX’s UI and OS have not yet been explored as to the success the iPhone will have in China over any rival vendors if one is able to use one fingertip for gesturally drawing the Chinese characters. It would be quick to do and adopted rapidly because of the visual vocabulary and orientation Asiatic Character Languages use. Mind you I am speculating. And the iPhone’s superior user experience of just picking it up and away you go, logical intuitiveness, strongly implies once the iPhone is attached to a carrier, it’s adoption in China could boggle the mind. Perhaps any length of time leading up to this deal being cemented, may only mean the Chinese will really get something to own and behold. Because the Chinese own very few personal computers, and the iPhone makes the most sense as a substitute for an affordable, and coveted mobile computing device that will be full featured upon it’s arrival in it’s next manifestation. Perhaps like Google, Apple will have to cede certain controls to the Chinese. Maybe it’s not so much about revenue but more in line with enabling the Chinese to feel they are able to censor or control contra-content. Finally someone mentioned reverse engineering. Well by 2012 China will lead the world in registering Intellectual Property Patents. If China does not want to honor IP Laws then they will find in the future the rest of the world taking their attitude down the road when they’ll have the most to lose. Good business is a two way street.

China Unicom’s “WO” 3G

Apple’s presumed iPhone carrier partner in China, China Unicom, unveiled its new 3G brand on Tuesday, April 28, 2009. China Unicom’s WCDMA 3G network and services will be marketed under the “WO” brand. The initial WCDMA network trial launch is scheduled on May 17 in 55 major cities across China. The full 3G network rollout is scheduled to be completed by year-end with 283 cities up and running under WCDMA coverage.

Five Star Appliance (Best Buy China)

As iPhonAsia reported on April 13, Apple has also reached an agreement with Best Buy owned Five Star Appliance to distribute Apple products throughout China. Apple will set up “stores-within-a-store” ala the Apple mini stores in US Best Buys. iPhone will presumably sell in the Five Star Appliance stores after it is officially launched. Read details on Apple and Five Star Appliance > HERE

There were rumors earlier this year that Foxconn Group’s (Hon Hai Precision is a Foxconn subsidiary) Cybermart would distribute Apple products in China. The Cybermart deal has been “officially denied” by Apple and Foxconn. Stay tuned, as it’s possible that we may hear about additional Apple distribution partnerships in China.

May 17 Announcements – Mid Summer Luanch

iPhonAsia believes the China Unicom iPhone deal announcement could be made on May 17 (World Telecom Day) or on June 9 (Apple’s WWDC Keynote). The formal iPhone launch will most likely happen sometime in mid to late summer, but not before July 1.

iPhonAsia believes that the iPhone for China will be a special production run and may come preloaded with several “for China” apps such as mobile search through Baidu.com and an app to support either Tudou or Youku (China YouTube alternatives). We may hear more about these special partnerships with Apple on May 17 or June 9. Read more > HERE

Lou Qinjian - MIIT VM

MIIT Approval of iPhone and WAPI or WiFi

It should be noted that Ministry of Industry and Information Technology (MIIT) approval of iPhone is a necessary precondition to an official iPhone launch. Last month, MIIT Vice-minister Lou Qinjian confirmed that China Unicom was “engaged in clandestine iPhone in China negotiations with Apple.” He would not disclose any details regarding the negotiations, however he did reveal that:

The MIIT also recently authorized 3G mobile handsets to includeWAPI, China’s homegrown version of WiFi. iPhonAsia is still holding out hope for approval of international WiFi standards (802.11) on 3G mobile phones in China. More on WAPI vs. WiFi> HERE

Update – April 24, 2009: Beijing. April 24. INTERFAX-CHINA– The Ministry of Industry and Information Technology (MIIT) has allowed mobile phone manufacturers to integrate China’s homegrown WAPI (WLAN Authentication and Privacy Infrastructure) standard into their handsets, a source at a domestic handset manufacturer told Interfax on April 22.

The source, who asked to not be identified, said that MIIT told a number of handset manufacturers on April 17 that both 2G and 3G handsets are now allowed to have integrated WAPI technology to allow users to access wireless broadband. Read details> HERE

MIIT mulling over WiFi policy for 3G smartphones

One egg that may now be in Apple’s Easter basket is an iPhone deal with China Unicom. While Apple and China Unicom may be on the same page, there could be one or two matters to clear up with China’s Ministry of Industry and Information Technology (MIIT). Namely a loosening up of WiFi restrictions and acceptance of iPhone and iPod Touch as approved gaming devices (similar to dispensation for Nintendo DS Lite). We’ll leave the gaming issue to another article on another day. Today the focus will be on WiFi.

What needs to be resolved? The MIIT has been favoring “indigenously innovated” WiFi technologies (WAPI vs. 802.11i) and has banned WiFi on 3G mobile phones. The logic for the ban appears to be the MIIT’s desire to protect carriers from voice over Internet protocol (VoIP) calling. The MIIT is also afraid that consumers will bypass carriers’ networks by way of WiFi that does not support China’s WAPI (Wireless LAN Authentication and Privacy Infrastructure) encryption protocols. WAPI is rumored to have backdoors that allow for Great Firewall snooping. More on China’s WAPI > HERE

This “no WiFi on 3G phones” policy has created unintended consequences and threatens to slow economic growth in China. Here’s a short list of the problems that the ban poses:

The ban has created a huge blackmarket demand for WiFi enabled phones. It has been estimated that 50% of all mobile phone sales in China are through unauthorized channels.

The demand for blackmarket handsets has helped to create a thriving “jail-braking” business, where entrepreneurs will unlock handsets and load them with “illegal in China” apps (e.g. Skype and other VoIP and tethering apps).

China loses out on licensing fees for all blackmarket handset sales.

Owners of blackmarket phones have little incentive to go “on contract” with carriers.

Non-WiFi handset owners have a lower ARPU

There is another key issue … With so many blackmarket handsets flooding the market, carriers may have trouble selling their new non-WiFi 3G handsets. China Mobile has several “on the drawing board” customized TD-SCDMA models they would like to promote – Levono OPhone with China Mobile’s proprietary OS, HTC with the Android OS, and forthcoming TD models from Nokia. China Unicom will also be promoting several new WCDMA 3G models including new iPhone 3G models* (yes, possibly plural).

*Guesswork: iPhonAsia believes the iPhone deal with China Unicom will be announced either May 17 or June 9 and will launch mid to late summer. The important caveat is the necessary MIIT approval of the new iPhone models.

3G Smartphones with WiFi enabled will spur greater consumption of wireless value added services (WVAS). This will generate new revenues for carriers and third-party app/game developers. Yet, for now, the WiFi ban stands. While VoIP apps may not be allowed for the foreseeable future in China, the ban on WiFi will only hurt carriers’ ability to enjoy higher average revenue per user (APRU).

There may be some good news on the horizon. It is apparent that carriers and handset manufacturers have been lobbying the MIIT to overturn the WiFi ban. They have likely made the case that smartphones with 3G + WiFi will generate greater average revenue per user (ARPU) verses 3G alone. Moreover, the genie is out of the bottle. There are thousands of open WiFi networks in China’s urban zones, and there is no good way the control the blackmarket in handsets unless MIIT shifts its WiFi policy. For example, there are now some 500,000 iPhone 3G owners in China surfing on EDGE 2.5 G and WiFi. China Telecom and China Unicom can expect the blackmarket to upset their plans to bring more Chinese wireless users “on contract.” China Mobile too has an incentive to add WiFi to select models (e.g. TD HTC) as they can expect TD-SCDMA smartphones to stay on the store shelves if they do not include WiFi.

The best way to undercut the blackmarket is to allow WiFi on 3G smartphones and provide incentives for consumers to purchase authorized handsets and to go “on contract” for cool and fun WVAS (e.g. App Store, music, games, mobile TV, video chat, wave-to-pay, tethering and many pre-loaded apps). The bottom line … there is more money to be made with WiFi than without.

Let’s hope China’s MIIT acts in Chinese consumers’ interests and in China’s economic interests by allowing WiFi on new 3G smartphones in China.